United Kingdom of Great Britain and Northern Ireland Business Guide

Introduction

The United Kingdom of Great Britain and Northern Ireland (usually shortened to the United Kingdom, the U.K., or Britain) is a country and sovereign state that lies to the northwest of mainland Europe, with its only land border with the Republic of Ireland.  It extends over all of the island of Great Britain and the north-east part of the island of Ireland.  The United Kingdom is bounded by the Atlantic Ocean, and its ancillary bodies of water, including the North Sea, the English Channel, the Celtic Sea, St George's Channel, and the Irish Sea. The United Kingdom is linked to France and Continental Europe by the Channel Tunnel.

The United Kingdom is a constitutional monarchy composed of four constituent countries: England, Scotland, Wales and Northern Ireland. The current monarch is Queen Elizabeth II, who is also the Queen and Head of State of fifteen other Commonwealth Realms, including Canada, Australia, New Zealand and Jamaica.  The Crown Dependencies of the Channel Islands and the Isle of Man, formally possessions of the Crown, form a federacy with the United Kingdom collectively known as the British Islands.  The UK also has fourteen overseas territories, all remnants of the British Empire which at its height encompassed more than a quarter of the world's surface and population.

Economy

Although Britain was the foremost great power during the 19th century, the economic cost of two world wars and the granting of independence to many of its empire states (including India, much of Africa, and Hong Kong) during the latter half of the 20th century diminished Britain's status in global affairs.  However, as a permanent member of the United Nations Security Council, a nuclear power, a member of the G8, the world's fifth largest economy, and having the second highest defence spending, Britain remains an important political, economic and military world power.  It is a member of the European Union and the Commonwealth of Nations.

The United Kingdom, a leading trading power and financial center, is one of the quintet of trillion dollar economies of Western Europe. Over the past two decades, the government has greatly reduced public ownership and contained the growth of social welfare programs. Agriculture is intensive, highly mechanized, and efficient by European standards, producing about 60% of food needs with less than 2% of the labor force. The UK has large coal, natural gas, and oil reserves; primary energy production accounts for 10% of GDP, one of the highest shares of any industrial nation. Services, particularly banking, insurance, and business services, account by far for the largest proportion of GDP while industry continues to decline in importance. GDP growth slipped in 2001-03 as the global downturn, the high value of the pound, and the bursting of the "new economy" bubble hurt manufacturing and exports. Output recovered in 2004, to 3.2% growth, then slowed to 1.7% in 2005 and 2.7% in 2006. The economy is one of the strongest in Europe; inflation, interest rates, and unemployment remain low. The relatively good economic performance has complicated the BLAIR government's efforts to make a case for Britain to join the European Economic and Monetary Union (EMU). Critics point out that the economy is doing well outside of EMU, and public opinion polls show a majority of Britons are opposed to the euro. Meantime, the government has been speeding up the improvement of education, transport, and health services, at a cost in higher taxes and a widening public deficit.

Market Overview

The United States and the United Kingdom are often described as having a special relationship. This relationship is the natural outcome of our common history and culture, our shared support of the rule of law, our mutual belief in democracy, freedom and tolerance, and our commitment to free trade and open markets. Our commercial ties represent one of the most important facets of this relationship. The level of bilateral trade and investment between our countries is strong and growing. Both our governments work to institute policies that will foster economic growth, encourage innovation and entrepreneurship, and promote free trade and fair competition. In addition, record numbers of people from the United States and the United Kingdom travel back and forth to study, work, visit, and learn about one another's country.

The trade component of the U.S. – UK commercial relationship continues to be robust:

• The UK is our second largest European export market and the fifth largestworldwide.
• Over 40,000 U.S. firms export to the UK.
• Total bilateral trade in goods and services increased 10% to $171 billion in 2005.
• U.S. exports to the UK in 2005 were $84 billion and consisted of $39 billion in goods and $45 billion in services.
• Exports of U.S. goods grew a healthy 8% in 2005.
• Major exports to the UK include aircraft and aircraft engines; pharmaceuticals; IT equipment and parts; electronic components; automobiles and parts; and telecommunications equipment.

Investment data are equally impressive:

• The U.S. and the UK are the largest foreign investors in each other’s country.
• U.S. direct investment in the UK grew 7% to reach $324 billion in 2005. In fact, 15% of all U.S. investment abroad is in the UK.
• UK direct investment in the U.S. totaled $282 billion, up 12% from 2005.
• Over one million citizens in each country worked for a company headquartered in the other nation.

The size and strength of the UK economy make it particularly attractive to U.S. exporters and investors:

• It is the world’s fifth largest economy with a GDP of $2.3 trillion ($39,000 per capita).
• GDP growth was 2.6% in 2006. In fact, the UK has enjoyed 57 consecutive quarters of GDP growth.
• The inflation consumer prince index (CPI) inflation was 2.3% in 2006.
• The key Bank of England interest rate is currently 5.25%.
• Unemployment is 5.4%, one of the lowest rates in the EU; employment totals 29.1 million, an all time high.

Once here, American firms find it easy to use the United Kingdom as a gateway to the rest of the EU. The British Government supports the rights of any company registered in the United Kingdom, irrespective of the nationality of its ultimate parent. All of these factors  combine to make the United Kingdom an excellent market for U.S. exporters and investors.

Market Opportunities

The following are just a few of the many business opportunities for U.S. firms to consider in the UK:

• 2012 Olympics: London will host its third Olympic and Paralympic Games in 2012. The UK will spend billions to regenerate London’s East End and transform it into an environmentally friendly site for the various Olympic events. Hosting the games will generate enormous demand for a multitude of goods and services. Near term opportunities will consist mainly of infrastructure development, site preparation and venue construction. As 2012 draws closer, there will be significant procurement of goods and services such as sports equipment, security equipment, catering, etc.
• Energy: The UK Government aims to produce 10% of its energy requirements through renewable sources by 2010 and 20% by 2020. Prospects are particularly strong in offshore wind power and microgeneration.
• Nuclear Decommissioning: The government has mandated that by 2008 all of the UK’s nuclear sites are to be decommissioned, presenting opportunities for waste clean-up and storage, site management, research and development and longterm decommissioning planning.

For 2007, the UK’s best prospect sectors include:

• Aerospace
• Agricultural products
• Apparel
• Computers and peripherals
• Drugs and pharmaceuticals
• Medical equipment
• Oilfield and drilling equipment
• Renewable energy equipment
• Telecommunications equipment
• Travel and tourism

Market Challenges

The size, maturity and openness of the UK market are also its greatest challenges. The UK is the world’s third largest importer of services and the fifth largest importer of merchandise. The size of this market, as well as its commitment to openness and fair trade, has created a robust yet intensely competitive business environment. The challenge comes from both UK and third country competitors. However, successful U.S. entrants can still find substantial sales and profits opportunities. As a member of the European Union, the UK is subject to EU directives in addition to its own regulations. It has had the reputation of “gold-plating” its regulations when transposing EU directives into UK law. In response to private sector concerns about this trend, the UK created the Better Regulation Executive (BRE) in 2005 to reduce the regulatory burden. The goal is to reduce the cost of doing business by $8 billion through industry impact assessments and “simplification plans” for over 500 government offices. The UK believes the BRE can be a model of “burden reduction and transparency” for the EU.